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The United States produced more than 13 billion gallons of corn ethanol in 2012 and is expected to produce a similar total in 2013. Where does it all go? Some is exported to Brazil and the European Union, but most goes into our fuel tanks. According to the Energy Information Administration, Americans burned 134 billion gallons of gasoline that contained 12.87 billion gallons of ethanol in 2011.

Those figures would place the average ethanol content (by volume) of a gallon of gasoline sold in the United States at about 9.6%. The good news is that the Renewable Fuel Standard, or RFS, has successfully met its goal of displacing 10% of gasoline consumption. The bad news is that the country has bumped up against the dreaded Blend Wall, or a saturated market for ethanol.

It is bluntly obvious that the current RFS cannot provide the help domestic producers urgently need. Luckily, one quick fix is at the Environmental Protection Agency's (EPA) disposal: a simple increase in ethanol blends from 10% to 15%. In 2011 the EPA even approved E15 for use in car models from 2001 onward but failed to enact proper labeling requirements for blenders -- effectively dismissing the idea. Here are four reasons action is desperately needed.

1. Economic catalystWhen the RFS became law in 2005, it was easy for critics to muffle the optimism for a future ethanol industry. Some critics viewed government involvement in biofuels as a death sentence, not to mention the "outrageous" goals of replacing any sizable amount of the country's oil imports, which were then at an all-time high.

By the end of 2012 -- a mere seven full years later -- the ethanol industry evolved from a marketplace dependent on government policies into one being held back by them. Irony kills.

Renewable Fuels Association CEO Bob Dinneen spoke sharply to critics of the industry in his annual address at the National Ethanol Conference last week. According to the RFA, the ethanol industry supported more than 382,000 total jobs, contributed $43 billion to GDP, and saved American consumers $30 billion in income in 2012.

2. Capacity trumps productionDomestic producers are operating at less than 88% capacity, with few destinations -- or incentives -- for extra production. Given current market conditions, the operational capacity is expected to fall further, as facilities react to corn inventories decimated by last year's drought. Leading producers such as POET and Archer Daniels Midland (NYSE: ADM) are just two companies raising prices or idling capacity. At last count the number of idled facilities stood at 34, up from just 26 in September.

Thanks to the lack of sugar feedstock, last August was the first month since December 2009 in which the country experienced a net import of ethanol. Although net imports are expected to continue until corn production rallies this summer, the idling acts as a positive feedback that will compound the overcapacity problem. Archer Daniels Midland, POET, and BioFuel energy are all taking advantage of slower production to upgrade several facilities. The enhancements will not only allow sorghum to be used in lieu of corn but will also increase efficiency and therefore capacity.

3. Predatory overseas marketsIn 2011, export revenues hovered near $1 billion -- an explosive turnaround from the nearly $1.6 billion in imports in 2006. Higher sugar prices in Brazil served as a major driving force in domestic ethanol's attractiveness, which quickly became the world's lowest-cost biofuel in 2011. Now the American ethanol industry is in danger of losing international competitiveness that took years to build. Brazil and Europe haven't exactly been shy about kicking Uncle Sam while he's down, either.

Several European countries have proposed tariffs on American ethanol imports, while Brazil has fought back into the Lower 48 supply chain. In a strange reversal of fortunes, overpriced Brazilian ethanol is now more competitive than its cheaper domestic rival. What gives? Rather than institute a temporary mandate protecting domestic producers, the EPA has sat idly by, all the while qualifying Brazilian ethanol imports as advanced fuel.

Leaders at the National Ethanol Conference voiced their concerns that domestic corn ethanol wouldn't be able to make up lost ground even when the market improves. Share prices of sugar behemoths Bunge (NYSE: BG) and Cosan (NYSE: CZZ) seem to agree, as each has soared in the past year on higher demand for sugar sweeteners and an improving outlook for Brazilian ethanol. If the world closes its doors to American ethanol, then producers are likely to suffer further in an even more saturated market.

4. Cellulosic capacity poised to soarCorn ethanol production is capped at 15 billion gallons per year under the current RFS, which, given land and irrigation constraints, is a good ceiling. A problem arises when you consider that the same mandate calls for 16 billion gallons per year of cellulosic ethanol by 2022. Increasing fuel economy and engine constraints will make it impossible for the United States to consume all of the proposed 31 billion gallons of ethanol each year.

That would represent 23% of 2011 gasoline volumes, which will only increase with the new CAFE standards as American automobiles use decreasing amounts of gasoline. This, of course, means that American ethanol exports will be a major factor in international markets and serves as yet another reason for the United States to stand up to Brazil and Europe.

KiOR (NASDAQOTH: KIORQ) is just one company changing the ethanol landscape. To be fair, the company produces drop-in cellulosic gasoline and diesel -- not ethanol. However, the company's fuels will be blended with traditional petroleum fuels until guidelines for novel fuels are hammered out. KiOR's first facility will reach full capacity of 11 million gallons per year in 2013, with another 35 million gallon facility scheduled for completion in 2014. Through catalyst upgrades, the two facilities could reach annual capacities of 18 million gallons and 55 million gallons, respectively.

It may not seem like much, but the company estimates that it could realize a profit of nearly $2 per gallon of fuel within a few years. How? Renewable identification numbers, or RINs, are bought and sold with renewable fuels, so the EPA can ensure that refiners are meeting their blending requirements. As long as market demand exists, RINs add value for producers such as KiOR. In total, the company estimates that the top 10 oil refiners will be required to buy $74.1 billion of renewable fuels under the current RFS.

Foolish bottom lineThe industry has fallen on hard times, but it's poised for at least another decade of tremendous growth. Since most cars in the United States can run on E15 blends, there is no excuse for inaction. Not enough to convince you? Consider: If displaced barrels of oil are taken into account, then ethanol exports provided the United States with a $54.3 billion trading surplus in 2011.

Tough to ignore when you put it like that.

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Some manufacturers say if you burn over 10% ethanol, the warranty is void. What are owners of such cars supposed to do if gas stations no longer supply low ethanol gasoline?

Too much ethanol washes the lubricating oil off the cylinder walls, resulting on severe wear, smoke from burning the oil, and so on. Until manufacturers start supplying engines designed to run on rich alcohol blends, supplying high ethanol gasoline is a greater theft from the driving public than even supplying alcohol at gasoline prices is.

The industry can supply over 1 billion more gallons of ethanol each year, but cannot do so because RFS dictates how much fuel can be sold on the market. This hurt national stocks of the fuel in previous years and is now resulting in lost competitiveness.

The time has come to readjust RFS mandates upward, but the government continues to take baby steps. Plenty of governments adopt protectionist stances for crucial industries that fall on hard times. I think the article as a whole expands upon my thoughts on the issue.

Not sure about the manufacturer claims, but FlexFuel vehicles are widely available. Pretty sure they can run on E85 if you can get your hands on it. I don't see why the EPA would make claims about engines being safe if it wasn't true.

When this trend starter, it was to help stem the tide of imported oil, mostly from the MidEast. But with the current trend toward doemestic sourced crude oil, (provided the current estimates are correct), the original need for ethanol (remember, it was to stem the tide of imported oil, mostly from the MidEast)...will largely go away. I see no reason to increase the standards, but at the same time, why not keep the standards as they are, so that we continue to have this supply of 10% supplement to current domestic supply? If we need more in the future, we could increase it then. If the current renewable fuels can make it in the current enviornment..........fine...........if it can't, let it go away. If the cellulosic ethanol, or other fuel, can make it in the marketplace, fine.........if it can't let it go away also. We have helped this industry enough, or so it seems to me, and it should now make it, or not make it, on it's own.

There is no free lunch. Ethanol does not give a 1:1 btu output vs. gasoline. You will take a mileage hit running higher concentrations of ethanol. This makes the economics even tougher to make the switch. With increased U.S. oil production this may become a non-event. CNG is a better option.

The great majority of our oil comes from Canada, but yes, one reason ethanol was originally mandated was to reduce imports. You're right that it shouldn't go away - I don't think the government wants to import and additional 485 million bbls of oil each year.

Nonetheless, it is a very divided issue that seems to be devoid of facts. I hope I brought a few to the discussion.

JeanDavid all new engines have the fuel injected under high pressure and sprayed into the combustion chamber milliseconds before combustion. The fuel never touches the sidewalls and it would only be milligrams of fuel if it did, no washing of oils will occur. 6sigmaaford and TMFBlacknGold... you misunderestand modern engines. Ethanol is 112 octane which allows much higher compression. Higher compression means the explosion happens in a smaller area and the force driving the pistons is higher. Ethanol is currently hampered by engines designed to run on crappy feedstock, gasoline. As the CAFE standards rise and future vehicles are required to get higher mpg, compression will rise and ethanol inclusion rates with rise... there is no alternative octane booster that is as clean, proven or economical as ethanol. The blend wall will move up as this is the only way the automakers will be able to meet the standards. Ford has already acknowled the need for 25% ethanol as a fuel choice in the future. All manufactures are downsizing engines, increasing turbocharging and compression to meet mpg standards. This will continue. You will not see V8 engines in 98% of vehicles within 10 years.

People do not eat #2 yellow corn that ethanol is made from. E15 is the most widely tested fuel ever developed, used in Nascar with no problems, what is the issue? Ethanol is currently selling for $2.41 and gas at $3.39. Fuel companies buy ethanol and blend it and take the $1 gallon profit. Stop the profit taking and bad press by oil companies and it will not cost less. there is less than 10 cents worth of corn in a box of corn flakes. The increase in food costs is due to fuel costs and transportation, not price of corn. By the way, ethanol uses only the starch in corn, all the protein and fiber passes through and is sold as animal feed. In other words we put animals on the adkins diet... fewer carbs, high protein and fiber, leaner meat... what problem can you find with that.

The ethanol Industry can sell as much E15 as they want.. they simply have to build out blender pumps (blender pumps ..pulls ethanol from one tank and gasoline from another and the consumer choose the blend they want .. 87 , E15 , E30 , E50 or E85).

E15 is not an alternative fuel but simply a additive for gasoline.. The Corn Lobby and Ethanol Industry want it because it represents VOLUME sales.

It does nothing for the consumer...

E85 on the other hand is 85% ethanol and just 15% gasoline and is an actual ALTERNATIVE fuel to Gasoline and is a fuel for the consumer (it allows the consumer to make an actual decision..ethanol or gasoline)

The Corn Lobby and Ethanol Industry could care less about E85 because of the lower sales volume and the fact they they need to actually compete on Price with Gasoline..where with E15 they simply sell the ethanol to the Oil companies (to blend) and they don't have to actually compete

There are 3,000 Stations selling E85 in the United States (out of 165,00 stations). and roughly 12 Million Flex Fuel Vehicles.

BTW..the only difference between a FFV and a non FFV is the Fuel Map (software settings for air/fuel micture) sometimes different set of fuel injectors. GM says it cost them about $75 to make a NON FVV a FFV that's capable of running Gasoline or E85.

The Bottom line is E15 is an additive that the Industry wants forced on all consumers.. E85 is an alternative fuel that allows the consumer to decide..Gasoline or Ethanol .

The dreaded blend wall is there because gasoline demand has been falling with the economy for 5 years. We peaked in 2007. That is why we import less oil/gasoline. We displaced petrol refinery capacity with ethanol refining compacity so we are net nowhere when it comes to attaining the vaunted goals of ethanol. E85 vehicle drivers don't fill up with E85 when available either because the mileage they get with e85 right now does not justify the loss of mileage. I will believe ethanol is a worthy player once it stops operating under a mandate. Ethanol is not the most tested fuel. The EPA bipassed the engineers who design the cars and the companies who build them to end around approve the fuel. Talk about a theocracy of fuel where the experts are ignored and the idealogues proceed forward no matter the cost. Finally the Cellulosic thing has been "just around the corner" for 10 years. The EPA just lost a court case over the fact they were making stuff up with no evidence the production would ever be realistic. Currently and for another 5 years cellulosic is just a lap experiment with the problem of robby fertility from the land to produce a few more gallons of substandard fuel. It takes a whole set of special equipment to harvest the stover for use. So far the plants have been getting that stuff for next to nothing with subsidies from the government.

While these blends are generally fine in daily driven late model vehicles. Small engines (lawn equipment, motor cycles, boats, generators) that may not get daily use are dying early deaths due to ethanol's corrosive properties.

Fuel stabilizers may help but it is no coincidence that power equipment shops are selling cans of pure gasoline for $6 a quart.

No problem Steven. Ethanol production was 13 billion gallons in 2011. Since only 19 of a barrel's 42 gallons of oil can be refined directly to gasoline, the same amount of gasoline would require 684 million barrels of oil:

13 billion gallons / 19 gallons per bbl = 684 million bbls oil

Accounting for lost energy content (EtOH has about 70% the energy of equivalent volume of gasoline):

684 million bbls * 0.7 = 489 million bbls oil

And finally, using the EIA average for imported Brent crude oil for 2011 of $111 per bbl:

479 million bbls * $111 per bbl = $53+ billion

Add the additional $1 billion in actual ethanol trade surplus to come to the final figure. The key here is that a barrel of oil doesn't yield 42 gallons of gasoline - a key missed step in many calculations.

Sending report...

Maxx has been a contributor to Fool.com since 2013. He's currently a graduate student at Carnegie Mellon University merging synthetic biology with materials science & engineering. His primary coverage for TMF includes renewable energy, renewable fuels, and synthetic biology. Follow him on Twitter to keep pace with developments with engineering biology.
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